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December 20, 2021

Sema4 pulls out of COVID testing contract with state

Yehyun Kim | CT Mirror Sema4 has informed state officials and its investors it will no longer provide COVID testing in Connecticut. Above, the company’s Branford office.

Sema4, the Stamford-based laboratory ensnared in a controversy over investments made by first lady Annie Lamont’s venture capital firm, has informed public health officials and its investors that it will no longer provide COVID testing, leaving the state without one of its key partners as the demand for testing rises.

Sema4 was one of four companies hired in July by the Department of Public Health to manage 23 testing sites across the state, according to DPH officials. The company notified some of its testing partners this week that it will exit the testing business by mid-January and return to its core business, which is genomic testing.  

The company’s contracts with the state have come under scrutiny because Annie Lamont’s firm, Oak HC/FT, is an investor. Oak HC/FT invested twice in Sema4, which has received millions of dollars from the state to perform COVID testing.

The CT Mirror reported in November that Annie Lamont’s firm, Oak HC/FT, invested in Sema4 twice — first in August of 2019, after Gov. Dannel P. Malloy’s administration awarded the company two start-up loans, and a second time, in July 2020, two months after the Lamont administration signed a $17.2 million contract with Sema4 to provide COVID testing. Later that year, DPH awarded Sema4 a second, no-bid contract, worth an additional $8.4 million, to administer COVID tests in long-term care facilities. It is unclear how much Sema4’s current contract, signed in July of 2021, is worth.

Gov. Ned Lamont’s critics say the governor, who recused himself from state transactions with companies in which his wife is invested, should have barred Sema4 from providing COVID testing; they also question whether the Lamonts will eventually profit from their investment in Sema4. The Lamonts have pledged to donate any profits they make to charity.

Sema4 is one of the main testing contractors for the state. Of the 23 state testing sites, Sema4 is running 15, located from Kent to Stonington and from Stamford to Killingly, according to DPH officials. 

A spokesman for DPH, Christopher Boyle, said Sema4 had notified the department on Wednesday of its plans. The contract was set to expire June 30, 2022, he said.

“We appreciate all the work SEMA4 has done throughout the pandemic to help build the state’s testing capacity. We respect their business decision and are in the process of identifying vendors from the master contract who can take on the work.”

Gov. Lamont’s spokesman Max Reiss said Friday that the administration “had zero input into Sema4’s decision to stop its COVID testing operation.”

The company provided a statement via email Friday, explaining that the decision was driven in part by management’s view that the circumstances of the pandemic are different today from what they were in the spring of 2020 when Sema4 pivoted to COVID-19 testing. “Nationwide and statewide lab capacity for COVID-19 testing has dramatically increased, vaccines and treatments are available, and there is broader acceptance of other testing options,” the statement read. “We therefore believe now is the appropriate time to dedicate our resources to Sema4’s core mission: aiding health systems, physicians, and patients to leverage precision medicine to improve outcomes in the women’s health, oncology, and population health arenas, delivering the most state-of-the-art solutions to the standard of care in CT and beyond.”

A spokesman for Sema4 added in an email late Friday, “our departure from COVID testing is aligned with our contractual obligations with the State.”

Sema4’s decision comes as the demand for testing has skyrocketed in the U.S. Here in Connecticut, over the past two weeks as the holidays approached and the Omicron variant began spreading, the number of COVID tests has tripled.

On Friday, Susan Hacking, a member of DPH’s Joint Operating Team, sent a memo to all health directors confirming Sema4 will stop doing testing in mid-January.

“By now many of you have heard that effective January 15th, 2022, Sema4 will discontinue its COVID-19 testing services,” Hacking wrote.  “A few of you have contacted me and are concerned about this news, so I wanted to let you to know that we are talking with Sema4 and the other testing providers on the state contract on how best to transition the state supported testing sites. Once we know more, we will work with each of you to maintain continuity of state supported testing. Please don’t hesitate to contact me if you have any questions.”

Sema4 signed its first contract with the state comptroller in the spring of 2020. Of all the laboratory partners who submitted responses to the state’s RFP, and who were quickly signed on as testing providers, Sema4 would go on to earn the second-most in COVID testing dollars, behind Quest Diagnostics.

On the same day the contract was signed, the associate general counsel in the governor’s office notified the Office of State Ethics that Oak HC/FT is an investor in Sema4. The director of the office said “the Governor and First Lady are under no legal obligation that they may derive from the contract.”

Lamont has said that neither he nor his wife had any involvement in Sema4 getting testing contracts and that it was the comptroller’s office that handled the RFP for the original testing contract. Comptroller Kevin Lembo told the CT Mirror last month that no one interfered in his office’s awarding of the contracts. Lembo also acknowledged he wasn’t aware of Annie Lamont’s investments in Sema4 until after the contract was already signed.

Based on written guidance provided to the Lamonts by the Office of State Ethics, as well as an interview with the agency’s executive director, the Sema4 contract posed no conflict of interest under state law on the part of the governor or first lady.

But Oak HC/FT’s decision to increase its stake in Sema4 after the state’s COVID testing contract lifted the company’s testing volume and boosted its revenue has created political problems for the governor, who has formally announced his reelection campaign. Oak HC/FT’s second investment in Sema4 occurred in July of 2020, two months after the Comptroller’s contract was signed.

A year later, in late July 2021, Sema4 began trading on the Nasdaq stock exchange after going public via reverse merger with the special-purpose acquisition company CM Life Sciences Inc. The deal reportedly valued the Mount Sinai spinoff at about $3 billion.

In a filing with the Securities and Exchange Commission this week, in which it informed investors of its plans to discontinue offering COVID-19 testing services, Sema4 said the company plans to write off $600,000 to $800,000 in inventory this year, related to its departure from COVID testing. It did not say how much ending the services for all its COVID-testing customers — in Connecticut and elsewhere — would impact the company’s revenue.

When Sema4 went public, Oak HC/FT’s stake was worth more than $66 million, according to SEC filings. It’s unclear how much of a profit — if any — that could amount to for Oak HC/FT, since neither Annie Lamont nor her venture fund disclosed the amount of its investment in Sema4 or whether Oak has cashed out any of its stake in the company.

Annie Lamont refused to answer questions about the Sema4 deal last month, instead issuing a statement to the CT Mirror.

“Ned and I had no involvement with the decision to enter into a contract with Sema4 or the terms of its contract with the State of Connecticut. Decisions involving Sema4 and the terms of the testing contract were negotiated by the Office of the Comptroller without any involvement from me or Ned,” the statement reads. “Finally, I have recused myself from all decisions relating to our investment in this company. To date, I have not earned any profit from the investment in Sema4, and I will keep our promise and pledge to donate any and all proceeds to charity.”

While it is not clear why Sema4 has now chosen to exit the testing business, the state contracts for COVID testing were a lifeline for the company in the spring of 2020 when the pandemic struck and their core business dried up. The contracts buoyed Sema4’s 2020 testing volume by 131%, according to the company’s S-1 Registration Statement, filed August 4, 2021. In Sema4’s most recent quarterly earnings filing on Nov. 15, it reported it had conducted more than 270,000 COVID tests in the first nine months of this year. Its total revenue from diagnostic testing rose 31% to $149 million in the first nine months of 2021, compared to the same period a year earlier. The company projected COVID testing revenue would amount to an additional $3 million in the final three months of this year.

But Sema4 told the Mirror last month that it doesn’t expect the COVID testing revenue stream to last forever. In a statement at the time, a spokesman for Sema4 said “our COVID-19 offering remains an ancillary, non-core part of our business and is distinguished as such in our financial statements.”

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